Daily Archives: December 1, 2011

The escalation in the nuclear crisis is now threatening to replace diplomacy with war as the west’s response to the Iranian threat. The recent comprehensive International Atomic Energy Agency report on Iran’s nuclear programme; public debate in Israel about the wisdom of a military strike, without much pushback from outside the country; private mutterings about the best “window” for such an attack; and now the serious diplomatic consequences of the assault on the British embassy and its staff, are combining to deepen the chasm of distrust to new and dangerous levels.

The price of a nuclear-armed Iran would be very high – unacceptably high. Iran’s capacity to destabilise the region would increase considerably.

But that is not an argument for military action. Avowed Iranian nuclear facilities are numerous and the regime does not lack for ammunition or targets in return. For these reasons we must avoid military action becoming a self-fulfilling prophesy. Read more

Over the past year Beijing has been caught between sticking to restrictive policies to achieve a ‘soft landing’ and switching gears to deal with the repercussions of the eurozone crisis. The cut in China’s bank reserve ratio by 50 basis points, which came a surprise to some, signals that the risks of a major economic slowdown are now of greater concern than an overheated economy. Data showing that Chinese manufacturing activity contracted last month for the first time in almost three years only added to those fears.

The prospect of political unrest has expedited this shift to more accommodating policies. Reports of dramatic falls in exports and the immediate impact it has already had on firms in Guangdong have spurred the leadership to act now.

While further monetary relaxation is likely, given the six increases in the reserve requirements over the past year, China has less flexibility in using either interest or exchange rate adjustments to support its objectives. Ironically at a time when the US is putting pressure on China to let the renminbi appreciate, the concern now is that exports are falling too fast. China’s trade surplus may total only 1.5 per cent of gross domestic output this year and could even disappear in the near term. Read more